Times interest earned ratio of less than 1 suggests that the company:
A)is using resources very efficiently.
B)has a serious financial problem.
C)has a very high interest expense.
D)has a high level of sales revenue.

Question

Quizplus · Accepted Answer

The times interest earned ratio measures a company's ability to cover its interest payments with its earnings. A ratio of less than 1 indicates that the company's earnings are not sufficient to cover its interest expense, which suggests that the company has a serious financial problem.

Times Interest Earned Ratio of Less Than 1 Suggests That